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Unformatted text preview: ed by regulation. Although regulation may be socially beneficial, it also imposes private costs, or a regulatory burden, on individual FI
owners and managers. Consequently, regulation is an attempt to enhance the social
9 A good example of a negative externality is the costs faced by small businesses in a one-bank town if the local
bank fails. These businesses could find it difficult to get financing elsewhere, and their customers could be similarly
disadvantaged. As a result, the failure of the bank may have a negative or contagious effect on the economic
prospects of the whole community, resulting in lower sales, production, and employment. sau86198_ch01.qxd 12 Part One 4/21/02 8:52 PM Page 12 Introduction Net Regulatory Burden
The difference between the private costs
of regulations and the
private benefits for the
producers of financial
services. welfare benefits and mitigate the social costs of the provision of FI services. The private costs of regulation relative to its private benefits, for the producers of financial
services, is called the net regulatory burden.10
Six types of regulation seek to enhance the net social welfare benefits of financial
intermediaries’ services: (1) safety and soundness regulation, (2) monetary policy regulat...
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This document was uploaded on 03/09/2014 for the course ACC 301 at HELP University.
- Spring '09